Exxon Citizen Suit With Record Penalty Difficult to Repeat

June 2, 2017

By Renee Schoof

The $20 million fine recently levied against ExxonMobil Corp. is a record penalty for an air pollution lawsuit brought by a citizens’ group, but attorneys say bringing other big cases like it will be difficult.

There are few targets as large as Exxon’s Baytown Complex in Texas, one of the largest integrated refining and petrochemical facilities in the world. And environmental groups opposed to the Trump administration’s policies are preparing to devote more of their time to defending Environmental Protection Agency regulations, sapping resources they might have used to sue industrial polluters.

While citizen suits in general are expected to increase, Clean Air Act cases like the Exxon suit are so complex that they stretch the bounds of what the groups can do, attorneys told Bloomberg BNA.

“We’re not the federal government,” Joshua Kratka, a senior attorney at the non-profit National Environmental Law Center who argued the case against the Baytown refinery, said. “There’s no way we have those resources. There’s really no substitute for a strong and effective EPA.”

A U.S. District Court for the Southern District of Texas judge in April assessed penalties of more than $21 million for violations of Exxon’s Clean Air Act permits based on self-reported “emissions events,” or unauthorized pollution caused by equipment malfunctions or startup and shutdown. Since the company already had paid more than $1.4 million in state and local penalties, the net penalty was about $19.9 million. It appeared to be by far the largest citizen suit penalty based on records going back about 10 years, according to the Justice Department.

Exxon on May 24 filed a motion to alter the judgment, challenging the basis for the penalty and arguing that it should be eliminated. Kratka said plaintiffs would file a response arguing that Exxon’s case was without merit.

Resource-Intensive Cases

The Clean Air Act allows citizens groups, such as environmental advocates, to bring enforcement challenges to industrial facilities believed to be violating federal air pollution standards. But the cases are expensive and time-consuming, attorneys said.

“There aren’t that many Clean Air Act citizen suits in any given year,” Eric Schaeffer, executive director of the Environmental Integrity Project and a former director of EPA’s Office of Civil Enforcement, said. “They’re difficult to bring.”

Environmental groups will increasingly use their resources for suits against the federal government over rollbacks of environmental regulations on the fossil fuel industry, Kratka said. And “the more times citizen and environmental groups have to sue the government, the less capacity they have to sue the violators.”

The Baytown lawsuit succeeded because the environmental attorneys did a careful job of researching the facts of the violations, attorneys said. They had a boost because air emissions reports must be made available online in Texas, and the groups used those reports as evidence that Exxon had violated federal pollution limits. They also got four people who lived near the complex to testify.

Environment Texas Citizen Lobby Inc. and the Sierra Club sued Exxon in 2010. The Sierra Club has received funding from Bloomberg Philanthropies, the charitable organization founded by Michael Bloomberg, founder of Bloomberg L.P. Bloomberg BNA is an affiliate of Bloomberg L.P.

The suit claimed there were unauthorized air emissions of benzene, sulfur dioxide and other pollutants from Exxon’s Baytown refining and petrochemical complex between October 2005 and September 2013. It cited State of Texas Environmental Electronic Reporting System (STEERS) reports to the Texas Commission on Environmental Quality documenting emissions of pollutants.

‘Too Big to Comply’

Despite the hefty fine, Seth D. Jaffe, a partner at Foley Hoag LLP in Boston and coordinator of the firm’s environmental practice group, who was not involved in the case, said the decision could be viewed as a victory for Exxon because the penalty covered years of violations and was small in comparison to the roughly $500 million the company spends on maintenance every year.

The maximum penalty could have reached $500 million, Jaffe wrote in ablog. Moreover, the federal judge denied the plaintiffs’ request for injunctive relief.

“I think it’s a win for Exxon because the law does not make any exceptions for facilities that are too big to comply,” Jaffe told Bloomberg BNA. “The fact that it’s impossible to comply doesn’t mean you don’t have to pay something if you’re in violation.”

Exxon Already Fined by Texas Regulator

An ExxonMobil spokesman said Texas regulators handled the case when the Texas Commission on Environmental Quality imposed the $1.4 million penalty on the basis of an agreed upon order. The state regulator also ordered Exxon to take corrective actions to reduce emissions. Exxon and the TCEQ agreed on the enforcement order in February 2012, two years after the environmental groups sued.

The spokesman, Todd Spitler, told Bloomberg BNA that aggregating volumes from emissions events over time, as the environmental groups did, “does not appropriately or accurately reflect the nature of the events or indicate an underlying issue at our integrated Baytown complex.”

That’s because the company reports emissions to federal and state regulators in a timely and consistent manner, complies with “all laws, regulations and permits, and has a robust compliance assurance system that enables workers to identify and report potential deviations from the company’s Clean Air Act permit requirements, Spitler said.

“Baytown personnel dedicate thousands of hours every year monitoring, validating and documenting our compliance to these regulations and our permits,” he said.

Spitler also said the Baytown complex had spent more than $1.3 billion since 2003 on environmental projects aimed at improving air quality and energy efficiency. Since 2005, the Baytown complex has reduced emissions from malfunctions and maintenance reported to the TCEQ by 90 percent, he said. Court records showed Exxon spent between $464 million and $685 million per year on maintenance of equipment at the complex.

Successful But Rare

The Baytown case is the third successful Clean Air Act citizen lawsuit filed by advocates against facilities in the Houston area over the past decade. During the trial, the Texas Oil & Gas Association raised fears that if the court validated the advocates’ approach, it could lead to a “a cascade of citizen suits, seeking to relitigate years of past administrative enforcement.”

But Environment Texas, one of the advocacy organizations involved in the Baytown litigation, can only handle one citizen lawsuit at a time, Luke Metzger, founding director of the group, told Bloomberg BNA.

Environment Texas is already involved in another Clean Air Act suit, this one against Pasadena Refining System Inc., which is owned by Petroleo Brasileiro S.A. (Petrobras). The lawsuit, filed in March, alleged the Houston-area refinery violated emissions limits thousands of times over the past five years.

Environment Texas and the Sierra Club filed two others since 2008—one against Chevron Phillips Chemical Co. and another against Shell Oil Co. Both were resolved with consent agreements. The groups said that the companies reduced emissions from their Gulf Coast plants by about 95 percent, or more than was required by their settlements.

Those cases, like the Exxon citizen suit, involved mainly “upset events,” such as equipment breakdowns and malfunctions.

“The goal is to get plants to put money into maintenance and better design and training, so they don’t break down and flare pollution into the community,” Kratka said.

Texas has an affirmative defense for such upset emissions, meaning that if a company can prove that it satisfied conditions such as the events being unavoidable or not recurring, it has a defense against penalty.

Kratka, who argued the appeal before the Fifth Circuit, said that ExxonMobil said all the violations met those criteria.

“We challenged every one, and the judge this time said it was the defendant’s burden to come up with proof,” Kratka said.

To contact the reporter on this story: Renee Schoof in Washington atrschoof@bna.com

To contact the editor responsible for this story: Rachael Daigle atrdaigle@bna.com